IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v29y2019icp373-378.html
   My bibliography  Save this article

Economic policy uncertainty, prudential regulation and bank lending

Author

Listed:
  • Hu, Shiwei
  • Gong, Di

Abstract

This paper empirically tests the theories concerning bank lending, economic policy uncertainty (EPU), and national prudential regulations. Using bank level data in 19 major economies, we find that EPU significantly hinders the growth of bank credit, but the effect varies across banks. In particular, the negative effect of EPU on loan growth is greater for larger-sized banks and riskier banks, while weaker for more liquid banks and more diversified banks. In addition, the impact of EPU on bank lending depends critically on national prudential regulations, such that the negative effect appears to be alleviated by both macroprudential and microprudential policies.

Suggested Citation

  • Hu, Shiwei & Gong, Di, 2019. "Economic policy uncertainty, prudential regulation and bank lending," Finance Research Letters, Elsevier, vol. 29(C), pages 373-378.
    • Handle: RePEc:eee:finlet:v:29:y:2019:i:c:p:373-378
    DOI: 10.1016/j.frl.2018.09.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612318303672
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2018.09.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Akinci, Ozge & Olmstead-Rumsey, Jane, 2018. "How effective are macroprudential policies? An empirical investigation," Journal of Financial Intermediation, Elsevier, vol. 33(C), pages 33-57.
    2. Laeven, Luc & Levine, Ross, 2007. "Is there a diversification discount in financial conglomerates?," Journal of Financial Economics, Elsevier, vol. 85(2), pages 331-367, August.
    3. Bruno, Valentina & Shim, Ilhyock & Shin, Hyun Song, 2017. "Comparative assessment of macroprudential policies," Journal of Financial Stability, Elsevier, vol. 28(C), pages 183-202.
    4. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    5. Cerutti, Eugenio & Claessens, Stijn & Laeven, Luc, 2017. "The use and effectiveness of macroprudential policies: New evidence," Journal of Financial Stability, Elsevier, vol. 28(C), pages 203-224.
    6. Bordo, Michael D. & Duca, John V. & Koch, Christoffer, 2016. "Economic policy uncertainty and the credit channel: Aggregate and bank level U.S. evidence over several decades," Journal of Financial Stability, Elsevier, vol. 26(C), pages 90-106.
    7. Gissler, Stefan & Oldfather, Jeremy & Ruffino, Doriana, 2016. "Lending on hold: Regulatory uncertainty and bank lending standards," Journal of Monetary Economics, Elsevier, vol. 81(C), pages 89-101.
    8. Zelong He & Jijun Niu, 2018. "The effect of economic policy uncertainty on bank valuations," Applied Economics Letters, Taylor & Francis Journals, vol. 25(5), pages 345-347, March.
    9. Gabriele Galati & Richhild Moessner, 2018. "What Do We Know About the Effects of Macroprudential Policy?," Economica, London School of Economics and Political Science, vol. 85(340), pages 735-770, October.
    10. Huseyin Gulen & Mihai Ion, 2016. "Editor's Choice Policy Uncertainty and Corporate Investment," The Review of Financial Studies, Society for Financial Studies, vol. 29(3), pages 523-564.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Chih-Wei & Lee, Chien-Chiang & Chen, Ming-Chien, 2022. "The effects of economic policy uncertainty and country governance on banks' liquidity creation: International evidence," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    2. Lu, Yiming & Wang, Yu, 2023. "Bank liquidity hoarding and bank systemic risk: The moderating effect of economic policy uncertainty," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    3. Zhang, Dongyang & Guo, Yumei & Wang, Zhaorui & Chen, Yanbin, 2020. "The impact of US monetary policy on Chinese enterprises’ R&D investment," Finance Research Letters, Elsevier, vol. 35(C).
    4. Norring, Anni, 2022. "Taming the tides of capital: Review of capital controls and macroprudential policy in emerging economies," BoF Economics Review 1/2022, Bank of Finland.
    5. Poghosyan, Tigran, 2020. "How effective is macroprudential policy? Evidence from lending restriction measures in EU countries," Journal of Housing Economics, Elsevier, vol. 49(C).
    6. Madeira, Carlos, 2024. "The impact of macroprudential policies on industrial growth," Journal of International Money and Finance, Elsevier, vol. 145(C).
    7. Emna Trabelsi, 2022. "Macroprudential Transparency and Price Stability in Emerging and Developing Countries," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(1), pages 105-129.
    8. Coman, Andra & Lloyd, Simon P., 2022. "In the face of spillovers: Prudential policies in emerging economies," Journal of International Money and Finance, Elsevier, vol. 122(C).
    9. Wu, Ji & Yao, Yao & Chen, Minghua & Jeon, Bang Nam, 2020. "Economic uncertainty and bank risk: Evidence from emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 68(C).
    10. Yavuz Arslan and Christian Upper, 2017. "Macroprudential frameworks: implementation and effectiveness," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential frameworks, implementation and relationship with other policies, volume 94, pages 25-47, Bank for International Settlements.
    11. Berger, Allen N. & Guedhami, Omrane & Kim, Hugh H. & Li, Xinming, 2022. "Economic policy uncertainty and bank liquidity hoarding," Journal of Financial Intermediation, Elsevier, vol. 49(C).
    12. Bilgin, Mehmet Huseyin & Danisman, Gamze Ozturk & Demir, Ender & Tarazi, Amine, 2021. "Economic uncertainty and bank stability: Conventional vs. Islamic banking," Journal of Financial Stability, Elsevier, vol. 56(C).
    13. Carlos Madeira, 2023. "The evolution of macroprudential policy use in Chile, Latin America and the OECD," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(3), pages 357-380, September.
    14. Kristin J. Forbes, 2021. "The International Aspects of Macroprudential Policy," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 203-228, August.
    15. Marcin Czaplicki, 2022. "Measuring the restrictiveness of (macro)prudential policy: the case of bank capital regulation in Poland," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(3), pages 322-338, September.
    16. Alvaro Fernandez-Gallardo & Ivan Paya, 2020. "Macroprudential Policy in the Euro Area," Working Papers 307121127, Lancaster University Management School, Economics Department.
    17. Garcia Revelo, José David & Lucotte, Yannick & Pradines-Jobet, Florian, 2020. "Macroprudential and monetary policies: The need to dance the Tango in harmony," Journal of International Money and Finance, Elsevier, vol. 108(C).
    18. Gómez, Esteban & Murcia, Andrés & Lizarazo, Angélica & Mendoza, Juan Carlos, 2020. "Evaluating the impact of macroprudential policies on credit growth in Colombia," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    19. Gong, Di & Jiang, Tao & Li, Zhao & Wu, Weixing, 2022. "Optimal loan contracting under policy uncertainty: Theory and international evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    20. Budnik, Katarzyna, 2020. "The effect of macroprudential policies on credit developments in Europe 1995-2017," Working Paper Series 2462, European Central Bank.

    More about this item

    Keywords

    Economic policy uncertainty; Prudential regulation; Macroprudential policies; Bank lending;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:29:y:2019:i:c:p:373-378. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.